CHAPTER2-LECTURE2 - VI CAPITAL LOSSES INDIVIDUALS OFFSET...

VI. CAPITAL LOSSES
INDIVIDUALS
OFFSET AGAINST CAPITAL GAINS
EXCESS – OFFSET $3,000 ($1,500 MFS)
MAXIMUM PER YEAR AGAINST ORDINARY
INCOME
EXCESS – CARRYFORWARD INDEFINITELY
(APPLY CURRENT YEAR LOSSES FIRST)
(RETAIN SAME CHARACTER)
CAPITAL GAINS – MAXIMUM TAX RATE OF
20% (10%, 18%, 8%)
(BEGINNING MAY 6, 2003 - 15% (5% (0%
BEGINNING IN 2008) FOR TAXPAYERS IN THE 15% TAX BRACKET OR 10%
TAX BRACKET)
(BEGINNING JANUARY 1, 2013 – 20% FOR TAXPAYERS IN THE
39.6% TAX BRACKET)
CORPORATIONS
OFFSET AGAINST CAPITAL GAINS ONLY
NO OFFSET OF $3,000 ($1,500) PER YEAR
AGAINST ORDINARY INCOME
EXCESS – MUST CARRY BACK 3 YEARS (TO
FARTHEST YEAR FIRST) THEN
CARRY FORWARD 5 YEARS (IF NOT FULLY
USED UP AFTER 5 YEARS, THE REMAINING
CAPITAL LOSS IS LOST FOREVER)
(APPLY CURRENT YEAR LOSSES FIRST)
(AUTOMATICALLY BECOMES SHORT-TERM )
CAPITAL GAINS – NO SPECIAL MAXIMUM
TAX RATE

PROBLEM 44
VII. RECAPTURE OF DEPRECIATION
(1) SECTION 1245 PROPERTY
(1) PERSONALTY PROPERTY
(2) NON-RESIDENTIAL REAL ESTATE
PLACED IN SERVICE BETWEEN
JANUARY 1, 1981 THROUGH
DECEMBER 31, 1986 IN WHICH
ACCELERATED DEPRECIATION WAS
USED
RECAPTURED AMOUNT IS LESSER OF:
(1) RECOGNIZED GAIN
OR
(2) ALL DEPRECIATION TAKEN
ASSUME THE FOLLOWING FACTS FOR A SECTION
1245 DEPRECIATION RECAPTURE ILLUSTRATION:
EQUIPMENT
ORIGINAL COST - $100,000
ACCUMULATED DEPRECIATION - $55,000
(ACCELERATED DEPRECIATION)
SALES PRICE - $110,000

EXAMPLE – FORMAT
ORIGINAL COST $ 100,000
LESS: DEPRECIATION TAKEN 55,000
= ADJUSTED BASIS $ 45,000
========
AMOUNT REALIZED (SALES PRICE) $ 110,000
LESS: ADJUSTED BASIS 45,000
= RECOGNIZED (REALIZED) GAIN $ 65,000
========
SECTION 1245 GAIN $ 55,000 *
(ORDINARY INCOME)
+ SECTION 1231 GAIN
(LONG-TERM CAPITAL GAIN) 10,000 **
= TOTAL RECOGNIZED GAIN $ 65,000
========
* - LESSER OF $65,000 (RECOGNIZED GAIN) OR $55,000
(ALL DEPRECIATION TAKEN)
** - PLUG AMOUNT ($65,000 (RECOGNIZED GAIN) MINUS
$55,000 (SECTION 1245 GAIN – RECAPTURED
AMOUNT))
(ALL OF THIS IS IDENTICAL FOR INDIVIDUALS,
CORPORATIONS, PARTNERSHIPS, S CORPORATIONS
AND TRUSTS (AND GENERALLY ESTATES))

(2) SECTION 1250 PROPERTY
(1) RESIDENTIAL REAL ESTATE
(2) NON-RESIDENTIAL REAL ESTATE
OTHER THAN
NON-RESIDENTIAL REAL ESTATE
PLACED IN SERVICE BETWEEN
JANUARY 1, 1981 THROUGH